News / Lufthansa bailout 'probably a win-win' for airline and Germany's taxpayers

© Khunaspix Dreamstime.

Lufthansa has spelled out its deal with the German government, which will see it receive a package of up to €9bn from the Economic Stabilisation Fund (WSF).

The government will enter into up to €5.7bn-worth of “silent participations” – meaning it will provide a capital deposit and participate in profits. Up to €4.7bn of the amount is classified as equity.

The government will receive 4% from its committed capital in 2020 and 2021, and 9.5% in the years up to 2027.

The WSF will also buy shares to build to a 20% stake in the airline – new equity thanks to a capital increase – at a subscription price of €2.56 per share, making the cash contribution about €300m.

If the airline is taken over, the WSF can increase its share to 25% plus one share.

If the carrier fails to pay the WSF, it can take a further 5% of the company from 2024 and 2026, but only if the carrier has not been taken over and it has already increased its stake.

However, if Lufthansa does repay, the WSF will sell its shareholding in full, at the market price – with a minimum sale value of €2.56 per share, plus 12% preferred-like annual interest – by the end of 2023.

“If the government takes a hit, it’ll be nicely compensated, according to this clause,” said Loadstar Premium chief Alessandro Pasetti.

He added that Lufthansa’s shares currently traded at about €9.2 and a 20% stake would be worth €874m, following today’s 6% rise in the company’s market value.

There are conditions related to dividend payments and restrictions on management pay, as well as two seats on the advisory board for the government, with one member also on the audit committee. The WSF will not use its voting rights at the AGM, however, unless there is a takeover attempt.

The package must also be approved by the European Commission.

So, is this a good deal for the airline, the taxpayer – or fair to both?

Mr Pasetti said: “There are too many variables to be able to form a proper judgement at this point in time – what does ‘lose out’ really mean here, considering the relative value that this situation carries, against a scenario according to which Lufthansa goes under?

“It’s probably a win-win. The taxpayers have bigger issues in Germany, like making sure their money is not allocated to bail out the rest of Europe. But if used to shore up the fundamentals of a company with 130,000 employees globally, knowing that the majority of those working in Germany are safe?

“What you may lose with the deal eventually, you gain in short-term cash flows for the consumer and VAT receipts for the state, which obviously must contain the ripple effect on GDP.

“For the taxpayer, it would have been significantly worse under a scenario in which Lufthansa goes under. One key question, though, is how, and for how long, the state equity overhang would weigh on the carrier’s value and operations.”

The carrier has also received more parental support via a syndicated credit facility of up to €3bn, from KfW and private banks, with a three-year maturity, subject to approval.